Wanted in the digital monopoly age – powers to curb the hold of online giants | John Naughton

Analysis by Lina Khan reveals how Amazon exploits outdated thinking about competition

One of the paradoxical things about digital technology is that while in theory it fosters competition, in practice it leads to winner-takes-all outcomes. The reasons for this are complex – they include zero marginal costs, powerful network effects, power-law distributions and technological lock-in – and need not detain us here. But we are all too familiar with the winners: Google in search; Apple’s IoS and Google’s Android in mobile operating systems; Facebook in social networking; YouTube in video; Microsoft in office software; Amazon in online retailing.

The five biggest companies in the world are now all digital giants, each wielding monopolistic power in their markets. We are increasingly aware that some of their activities are socially damaging: they are deepening inequality, avoiding taxation, undermining democratic processes, creating addictive products, eroding privacy and so on. And yet, with the odd exception (mostly represented by the European commission), our societies seem transfixed by them, like rabbits paralysed in the tractor’s headlights. Politicians bleat about the need to do something about the digital giants, but so far it’s been all talk and no action.

This is strange because democracies have extensive legal toolkits for dealing with overweening corporate power. We have antitrust and competition laws, monopolies and merger commissions and federal trade commissions coming out of our ears. And yet – again with the single exception of the European commission – they seem unable to deal with the digital giants. Why?

The answer is partly historical and partly ideological. Our approach to monopoly was shaped a century ago as the US Congress struggled to rein in the huge industrial trusts assembled by robber barons of the day. Then, the harms inflicted by monopolistic power were relatively visible and the solution was seen as antitrust laws designed to foster open competition in markets.

The ideological twist came in 1978 when the American legal theorist Robert Bork lobbed a grenade into the cosy consensus. In his book, entitled The Antitrust Paradox, he argued that the historical obsession with competition had become irrational and, in fact, was bad for consumers, who often benefited from corporate mergers. The proper test for monopolistic abuse, he maintained, was whether it harmed consumers. Just because a company was dominant didn’t mean that it was evil.

Bork’s book was prescient (he was writing before the internet emerged) and it greatly influenced how regulators (and American judges) thought about monopoly power. So when, in due course, digital technology delivered the new monopolists, Bork’s thesis came like manna from heaven – for it meant that if Amazon, say, becomes dominant, even though competitors are just a click away, then surely its monopoly is a sign of excellence, not evil. And, given that its prices are famously competitive, where’s the consumer harm?

The strange combination of legislative obsolescence and ideological acceptance meant that, over two decades, companies such as Amazon, Google and Facebook grew into corporate giants without any serious regulatory oversight. Then, in January 2017, an intriguing article appeared in the Yale Law Journal. Its title, Amazon’s Antitrust Paradox, was clearly a poke at Bork, so I settled down to read. A hundred footnoted pages later, I came away with the thought that there might be light, after all, at the end of the antitrust tunnel.

What was perhaps most remarkable was that this academic tour de force was the work of a young law student, Lina Khan. Amazon, she points out, is no ordinary company but a corporate entity that has positioned itself at the heart of e-commerce and metamorphosed into an essential infrastructure for a host of other businesses that depend upon it. “In addition to being a retailer,” she writes, “it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer and a leading host of cloud server space.” She doesn’t mention that Amazon is also planning to enter the food and healthcare businesses because her article predated those particular extensions. And there are, no doubt, more in the pipeline.

Khan’s analysis shows that the current framework of (Borkist) antitrust thinking, particularly its dogma for measuring competition in terms of “consumer welfare” (defined as short-term price effects), is incapable of capturing the kind of market power that Amazon now possesses. In order to deal with it, therefore, we need to decide if the company should be treated as a platform (and controlled through updated competition law) or accept that it is a monopoly and regulate it accordingly. Either way, our resigned passivity in the face of such a corporate giant has to end. Over to you, EC competition commissioner Margrethe Vestager. And how about recruiting Ms Khan as an adviser?

What I’m reading

Sounds good
Are better noise-cancelling headphones on the way? Maybe, given that wifi is faster than the speed of sound - at least according to this research described in IEEE Spectrum.

Ready to where?
Dozens of location-sensing smartphone apps are surreptitiously selling your location data, according to a report at TechCrunch. Surprise, surprise!

The French connection
Sacre bleu! President Macron’s team have found CIA-owned software at the heart of their country’s anti-terrorist surveillance systems, Bloomberg reports. Trouble is: there’s no other supplier, apparently.


John Naughton

The GuardianTramp

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